It would be very easy for a casual observer to think that the Solana network is for memecoins and Ethereum is for financial institutions.
While BlackRock CEO Larry Fink has preached the gospel of tokenization on Ethereum – his company even launched a tokenization fund, BUIDL, on that blockchain – Solana has often drawn attention this year thanks to the success of pump.fun, a protocol that allows users to create memecoins in minutes.
However, that does not mean that Ethereum has a monopoly on institutional interest, according to Hadley Stern, commercial director at Marinade Finance, a Solana-based DeFi protocol that offers staking services for the blockchain's tokens (SOL).
"From an institutional perspective, it's still too early," Stern, founding president of Fidelity Digital Assets and global head of digital asset custody at BNY Mellon, told CoinDesk in an interview. "We can count on one hand the number of TradFi products being built or have been built on Ethereum and Solana."
"I was brought into [Marinade] because there is so much product discovery around strong institutional interest," Stern said. "Asset managers, high-net-worth individuals, retail owners, hedge funds... are interested in [staking on Solana]."
Launched in March 2020, Solana and SOL exploded onto the cryptocurrency market during the 2021 bull market partly thanks to support from FTX CEO Sam Bankman-Fried. SOL collapsed when FTX went down, but has made a comeback in 2023 and, at $79 billion, is currently the fifth-largest cryptocurrency by market capitalization.
Stern's assessment comes as financial giants like Franklin Templeton, Citibank, and Société Générale all announced new projects based on Solana last September at Breakpoint, the network's largest annual conference. And he is not the only one excited by such institutional enthusiasm.
"At Breakpoint, it was surprising to see how many people are currently building on Solana," Tristan Frizza, founder of the decentralized derivatives exchange Zeta Markets based in Solana, told CoinDesk in an interview. "Organizations are doing some pretty crazy things."
Solana and Ethereum
At first glance, building on Ethereum may seem unintelligent for financial institutions. After all, this is the oldest and largest smart contract blockchain, it has the largest number of developers in the cryptocurrency ecosystem, it handles most stablecoin transactions and is the birthplace of DeFi. "If you work at a large bank and you are trying to tokenize an asset, you won't get fired for putting it on Ethereum," Bitwise Chief Investment Officer Matt Hougan recently told CoinDesk.
But Ethereum is not without risks, according to Leah Wald, CEO of Sol Strategies, a cryptocurrency holding company that also operates a large Solana validator.
"The uncertainty surrounding transaction fees certainly does not make anyone feel comfortable," Wald told CoinDesk in an interview. "If you are an organization and you are thinking 10 years ahead, you cannot build on a blockchain that you are concerned about."
"BlackRock's BUIDL is based on Ethereum and for what they are trying to build, I think that's perfectly fine," Wald added, but any type of project with high transaction volumes, like real-time payments or trading, could run into difficulties. "If we are talking about a more complex on-chain fund, or a financial platform, then there is a real opportunity for Solana."
In other words, there is currently no guarantee that Ethereum's scalability strategy, revolving around layer 2 blockchains, will pay off and the transformations that the network has undergone in recent years – such as monetary policy changes or the shift from Proof-of-Work to Proof-of-Stake – indicate that Ethereum is still figuring itself out.
In contrast, Solana's cheap and low-throughput transactions are not dependent on completing a technical and complex roadmap. And that could make a difference.
However, Wald notes that in the U.S., Ethereum benefits from clearer regulatory guidance compared to Solana. The fact that the Securities and Exchange Commission approved spot ether exchange-traded funds this summer could be a comfort for institutions, even though the inflows into those new funds have been disappointing. A spot SOL ETF could take many more years, depending on the outcome of today's presidential election.
Another mindset
Another point where Solana tends to be underestimated, Frizza said, is in terms of technical innovation. While Ethereum is famous for its army of developers, builders on Solana tend to fly under the radar, even as they roll out new tools and products that could impact the cryptocurrency ecosystem beyond their own.
Frizza said, "People underestimate what Solana allows from a structural perspective - and also the mindset that Solana builders have. They really care about users, products, building things that scale and meet user needs."
For Frizza, that attitude means that if another cryptocurrency frenzy happens again, attractive applications will be brought to light on Solana. Speaking about Zeta Markets, he mentioned one priority is "breaking down UX barriers and making it feel as easy as trading on Robinhood. That's when you can really start opening the channel and bringing a lot of people in."
Stern agrees. Memecoins themselves are not an innovation, he says, but the fact that they can thrive on Solana in a way that they cannot on any other platform is symptomatic of developers working at the highest level: pump.fun is simply taking advantage of a technical breakthrough. "Ethereum has a very close relationship with the open-source ethos, while I think the Solana Foundation does a better job from a business development perspective," Stern said. "It's kind of leading, but not in a completely controlling way, and letting a thousand flowers bloom."